Transcript GASB Update

38 Years of Excellent Client Service
GASB Update
Presented By
William Blend, CPA, CFE
Schedule
GASB Update
Part 2
GASB Update
Part 1
Break
Course Begins
Course Ends
2
Housekeeping Details
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Course evaluations
Confirmation of attendance
Type of credit
Participants’ responsibility
Other matters
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GASB Update
Agenda
 Clarifications on implementation of GASB
No. 54 – Fund Balance Reporting and
Governmental Fund Type Definitions
 GASB 60 – Accounting and Reporting for
Service Concession Arrangements
 GASB No. 61 – The Financial Reporting
Entity: Omnibus
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GASB Update
Agenda
 GASB 62 – Codification
 GASB 64 – Derivatives: Application of Hedge
Accounting
 GASB 63 – Reporting Deferred Outflows,
Inflows and Net Position
 Future GASB Projects
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38 Years of Excellent Client Service
GASB Update Part 1
6
38 Years of Excellent Client Service
GASB 54 Revisited
7
GASB 54 OVERVIEW
Objectives:
 Establishes fund balance classifications based on
the relative strength of the constraints on spending
and the source of constraints
 Clarifies the existing governmental fund type
definitions (special revenue funds and capital
projects funds)
8
GASB 54
GASB No. 54 – Fund Balance Reporting and
Governmental Fund Type Definitions
This statement is designed to improve financial reporting
by establishing fund balance classifications that are easier
to understand and apply.
The following classifications are established:
• Nonspendable (inventory, prepaids, advances, etc.)
• Restricted (externally)
• Committed (contractual, highest level of action by governing body)
• Assigned (intended use set by a governing body or designee)
• Unassigned (residual in general fund)
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GASB 54 IMPLEMENTATION GUIDANCE
GASB Comprehensive Implementation Guide
• Refer to Chapter Z, Section 54
10
NONSPENDABLE FUND BALANCE
 First, consider resources that are not in spendable
form, such as inventories and prepaids.
 Second, consider other amounts that are
“potentially” nonspendable, such as long-term
receivables, long-term advances to other funds,
and property held for resale.
 Third, determine if “potential” amounts are
restricted, committed, or assigned.
11
NONSPENDABLE FUND BALANCE
 If cash to be received from nonspendable asset is
restricted, committed, or assigned, then fund
balance should be classified as such and not as
nonspendable
12
NONSPENDABLE FUND BALANCE
Q: General Fund has inventory of $100 and long-term
advances to Utility Fund of $400? Payments
received from Utility Fund will fund general
government operations. What amount should be
reported as nonspendable fund balance in the
General Fund?
A: $500 Nonspendable
13
NONSPENDABLE FUND BALANCE
Q: CRA Special Revenue Fund has prepaids of $50
and property held for resale of $150? What
amount should be reported as nonspendable fund
balance in this Special Revenue Fund?
14
NONSPENDABLE FUND BALANCE
A: Only $50 is nonspendable. Because spendable
resources in a special revenue fund must be either
restricted, committed, or assigned, cash received
from sale of property will fall into one of those
categories.
15
RESTRICTED FUND BALANCE
 Externally imposed by creditors (such as through
debt covenants), grantors, contributors, or laws or
regulations of other governments
 Imposed by law through constitutional provisions
or enabling legislation
16
RESTRICTED FUND BALANCE
Restricted Fund Balance for governmental funds does
not typically equal Restricted Net Assets for governmental activities for the following reasons:
1. Principal of permanent fund is nonspendable for
governmental funds but restricted for governmental activities
2. Difference in basis of accounting
3. Governmental activities includes internal service
fund assets
17
COMMITTED FUND BALANCE
 Amounts used for specific purposes pursuant to
constraints imposed by formal action of the
government's highest level of decision-making
authority
 Committed fund balance also should incorporate
contractual obligations to the extent that existing
resources in the fund have been specifically
committed for use in satisfying those contractual
requirements
18
COMMITTED FUND BALANCE
 Committed fund balance constraints cannot lapse
 Amounts in committed fund balance may only be
redeployed for other purposes by using the same
level of action used to originally commit the funds
19
COMMITTED FUND BALANCE
 Formal action of the government's highest level of
decision-making authority that commits fund
balance should occur prior to the end of the
reporting period
20
ASSIGNED FUND BALANCE
 Amounts that are constrained by the government's
intent, but are neither restricted nor committed
 Intent should be expressed by:
• The governing body itself
• A body (a budget or finance committee, for
example) or official to which the governing body
has delegated the authority to assign amounts
to be used for specific purposes
21
ASSIGNED FUND BALANCE
 Assigned fund balance includes:
• All remaining amounts (except for negative
balances) reported in governmental funds,
other than the general fund, not classified as
nonspendable, restricted or committed
• Amounts in the general fund that are intended
to be used for a specific purpose
22
ASSIGNED FUND BALANCE
 Reporting amounts that are not restricted or
committed in a special revenue; the government has
assigned those amounts to the purposes of the
respective fund
 Unspent resources remaining in a special revenue
fund at year end remain assigned (no additional
action necessary)
23
ASSIGNED FUND BALANCE
 Action to assign may occur after close of the
reporting period to identify purpose and amount
24
ASSIGNED FUND BALANCE
Q: A government adopts its FY13 legal budget before
9/30/12 through the use of an ordinance, which
includes the use of FY12 existing fund balance to
cover a projected FY13 budgetary deficit of $500.
Should the $500 be reported as committed or
assigned fund balance at 9/30/12?
A: Assigned. Because the constraint lapses at end of
FY13 budget period with no formal action taken.
Committed constraints do not lapse.
25
ASSIGNED FUND BALANCE
Q: City’s FY13 legally adopted budget ordinance for
the general fund reports beginning fund balance of
$100 as a funding source and also projects an
ending fund balance of $75. What amount should
be reported as “Assigned for Subsequent Year
Expenditures” at 9/30/12?
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ASSIGNED FUND BALANCE
A: $25 – The legal budget authorizes rather than
constrains spending. The $100, while included in
the FY13 budget as a funding source, is not entirely
constrained for spending in FY13. Only $25 ($100
beginning FB minus $75 ending FB) is intended to
fund the FY13 budgetary deficit.
27
UNASSIGNED FUND BALANCE
 Unassigned fund balance is the residual
classification for the general fund
 The general fund should be the only fund that
reports a positive, unassigned fund balance amount
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UNASSIGNED FUND BALANCE
 Unassigned fund balance is not an appropriate
category for encumbrances because a purchase
order entails a spending constraint (assignment at a
minimum)
 Unassigned fund balance of a blended component
unit becomes assigned, committed, or restricted
when it is reported in the primary government’s
financial statements because it is reported as a
special revenue fund
29
STABILIZATION ARRANGEMENTS
 Some governments set aside amounts for use in
emergency situations or when revenue shortages or
budgetary imbalances arise. Those amounts are
subject to controls that dictate the circumstances
under which they can be spent, such as:
• Revenue stabilization
• Working capital needs
• Contingencies or emergencies
30
STABILIZATION ARRANGEMENTS
To be classified as restricted or committed:
– Authority for establishing stabilization
arrangements should be set by enabling
legislation or highest level of decision making
– Conditions of arrangement must be specific and
non-routine
• “in an emergency” is not specific
• “when revenues fall more than 1% below
expectations” is specific but could be expected to
occur routinely
31
STABILIZATION ARRANGEMENTS
Regardless of whether arrangement meets criteria
to be classified as restricted or committed,
disclosure is needed for the following:
– The authority for establishing stabilization arrangements (for example, by statute or ordinance)
– The requirements for additions to the stabilization
amount
– The conditions under which stabilization amounts may
be spent
– The stabilization balance, if not apparent on the face of
the financial statements
32
STABILIZATION ARRANGEMENTS
Difference between a stabilization policy and a
minimum fund balance policy:
• A stabilization arrangement establishes spending
constraints so that fund balance may be expended
only when certain specific circumstances or
conditions exist that are not expected to occur
routinely. A minimum fund balance policy
establishes a savings target that the government
believes should be maintained.
33
STABILIZATION ARRANGEMENTS
Q: What is the difference between a stabilization
arrangement and a minimum fund balance policy?
34
STABILIZATION ARRANGEMENTS
A: For financial reporting purposes, resources set aside
under a stabilization arrangement may be expended
only when certain specific circumstances or
conditions exist that are not expected to occur
routinely. A minimum fund balance policy generally
does not stipulate the conditions under which fund
balance may fall below the minimum but, rather,
establishes a target amount that the government
believes should be maintained to provide a
reasonable level of assurance that day-to-day
operations can continue if revenues are insufficient
to cover expenditures.
35
STABILIZATION ARRANGEMENTS
Q: In May 2012, a City Commission agrees in a
workshop that it would like to set aside a “reserve
for emergencies” in its General Fund equal to 25%
of General Fund operating expenditures. If there is
no further action on the matter, how should this
affect the City’s fund balance classification at
9/30/12? Committed, assigned, or unassigned?
36
STABILIZATION ARRANGEMENTS
A: Unassigned.
– Not committed because no formal action was taken
by the Commission, nor did the Commission
establish specific and non-routine conditions to
determine when the fund balance amount could be
spent.
– Not assigned because the only possible classification
options for stabilization arrangements, even “de
facto” stabilization arrangements like a minimum
fund balance policy, are restricted, committed, or
unassigned (GASB 54, Para. 21).
37
REPORTING ENCUMBRANCES
 Encumbering amounts for specific purposes for
which resources already have been restricted,
committed, or assigned should not result in
separate display of the encumbered amounts
within those classifications (within the detail note,
or on the face of the financial statements)
 Encumbrances should not be included within
unassigned fund balance classifications
38
GOVERNMENTAL FUND TYPE
DEFINITIONS
 General Fund
 Special Revenue Funds – will have further
discussion
 Capital Projects Funds
 Debt Service Funds
 Permanent Funds – will have further discussion
Definitions are modified to provide for clarity and
consistency
39
GOVERNMENTAL FUND TYPE
DEFINITIONS
Special Revenue Funds
 Special revenue funds are used to account for and
report the proceeds of specific revenue sources that
are restricted or committed to expenditure for
specified purposes, other than debt service or
capital projects
 Restricted or committed revenues should be the
foundation for a special revenue fund
40
GOVERNMENTAL FUND TYPE
DEFINITIONS
Special Revenue Funds (Con’t.)
 Assigned resources are permitted, but the restricted
or committed revenue sources should be expected
to continue to comprise a substantial portion of the
inflows reported in the fund
 Annual transfer is not a sufficient basis for use of a
special revenue fund
41
IMPLEMENTATION EXAMPLE
Special Revenue Funds
Q: A government uses a formal ordinance to
require that 20% of an existing revenue source
can be spent only for economic development
activities. A separate fund is established to
account for those resources and their use. The
government budgets the entire revenue source
in the general fund and annually appropriates a
transfer to the separate fund. Can the
government report the separate fund as a
special revenue fund?
42
IMPLEMENTATION EXAMPLE
Special Revenue Funds
A: It depends. The ordinance qualifies as a
commitment of a specific revenue for a
specific purpose. However, notwithstanding
the budgetary treatment, the separate fund
can be reported as a special revenue fund
only if the 20% portion is recognized as
revenue in the separate fund, rather than in
the general fund.
43
GOVERNMENTAL FUND TYPE
DEFINITIONS
Permanent Funds
 Used to account for and report resources that are
restricted to the extent that only earnings, and not
principal, may be used for purposes that support
the reporting government's programs, that is, for
the benefit of the government or its citizenry.
44
IMPLEMENTATION
The following slides present examples provided
within the statement itself, the comprehensive
implementation guide, and a few real-life
examples of implementing the standard for
assigned fund balance.
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IMPLEMENTATION EXAMPLE
Assumptions
– Special revenue fund whose policy is to use
restricted resources before unrestricted
– No established policy for use of its unrestricted
resources
– The fund includes amounts that have been
restricted, committed, or assigned to three
specific purposes
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IMPLEMENTATION EXAMPLE
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IMPLEMENTATION EXAMPLE
Using the example in the preceding question, assume
that the government has adopted a policy of using
assigned resources first, followed by committed
amounts. How would the ending balances change?
(Q&A2012-Z.54.20)
48
IMPLEMENTATION EXAMPLE
49
IMPLEMENTATION EXAMPLE
Using the special revenue fund example, what would
be the effect if one of the specific purposes was
overspent? (Q&A2012-Z.54.21)
The government would first reduce balances assigned to
other purposes in the fund (the specific purposes that
would be reduced are at the government's discretion)
until the deficit is eliminated. However, if the deficit
exceeds the remaining assigned balances in the fund,
then the residual amount should be reported as
negative unassigned fund balance.
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IMPLEMENTATION EXAMPLE
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38 Years of Excellent Client Service
GASB 60
52
GASB Statement No. 60
Accounting and Financial Reporting for Service
Concession Arrangements
• Effective for fiscal years beginning after December 15,
2011 and thereafter (FL - FYE 6/30/13 & 9/30/13)
• A type of public-private or public-public partnership
• Parties: Transferor, Operator, Customer/User
• Benefits:
– Leverage existing infrastructure for cash
– Get facilities built, but transfer the risks
– Provide services in a more efficient manner
53
Scope: What is an SCA?
ALL of the following criteria are met:
• Transferor conveys to an operator the right
and related obligation to provide services to
the public through the use and operation of a
capital asset (“facility”) in exchange for
significant consideration
• Operator collects and is compensated by fees
from third parties
54
Scope: What is an SCA?
ALL of the following criteria are met:
• Transferor is entitled to significant residual
interest in the service utility of the facility at
the end of the arrangement
• Transferor determines or has the ability to
modify or approve:
– What services the operator is required to provide
– To whom the services will be provided
– The prices or rates that will be charged
55
Examples of SCAs
• An operator will design and build a facility and
obtain the right to collect fees from third parties:
construction of a municipal complex for the right to
lease a portion of the facility to third parties.
• Operator will provide significant consideration in
exchange for the right to access an existing facility:
operating a parking garage and collecting fees from
third parties for its usage.
56
Examples of SCAs
• The operator will design and build a facility (new
tollway), finance the construction costs, provide
the associated services, collect the associated fees,
and convey the facility to the government at the
end of the arrangement.
57
GASB Statement No. 60
• Should recognize a liability for certain obligations to
sacrifice financial resources if:
– Obligation relates directly to the facility, or
– Obligation relates to a commitment to maintain a
minimum or specified level of service in the facility
• Deferred inflow should be reduced and revenue
recognized in a systematic and rational manner over
the term of the SCA
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38 Years of Excellent Client Service
GASB 61
59
GASB 61
THE FINANCIAL REPORTING ENTITY:
OMNIBUS - AN AMENDMENT OF
GASB STATEMENTS 14 AND 34
60
INTRODUCTION
 Effective for fiscal years beginning after June 15,
2012 (FL - FYE 6/30/13 & 9/30/13)
 The cumulative effect of applying this statement
should be reported as a restatement of beginning
equity for the current period with appropriate
disclosure
61
INTRODUCTION
 Omnibus means to address multiple issues within
one document
 Objective of GASB 61: To improve financial reporting
for governmental entities and, specifically, to address
issues that have arisen since GASB 14 and 34
– Include the organizations that should be included
– Exclude the organizations that should not be included
– Consistency with current conceptual framework
62
SCOPE AND APPLICABILITY
 Modifies existing requirements for the assessment
of potential component units in determining what
should be included in the financial reporting entity,
and financial reporting entity display and disclosure
requirements. It applies to financial reporting by
primary governments and other stand-alone
governments, and to the separately issued financial
statements of governmental component units, as
defined in Paragraph 9 of Statement 14.
63
SCOPE AND APPLICABILITY
 In addition, GASB 61 should be applied to
nongovernmental component units when they are
included in a governmental financial reporting
entity.
64
AMENDMENTS TO INCLUSION CRITERION
 GASB 61 adds “financial” to the “accountability” criteria of
GASB 14, making it “financial accountability.” To meet this
criteria, the following circumstances for a primary government
should include the following:
a. PG appoints a voting majority and it is able to impose its will on
the organization or the organization has the potential to provide
specific financial benefits to, or impose financial burdens on the
PG
b. If an organization is fiscally dependent on the PG and there is a
potential for the organization to provide specific financial
benefits to, or impose specific financial burdens on, the PG
despite: (1) separately elected governing board, (2) governing
board appointed by a higher level of government, or (3) jointly
appointed board
65
AMENDMENTS TO INCLUSION CRITERION
 Examples of the financial benefit or burden relationship
presented in GASB 61 are:
a. PG is legally entitled to, or can otherwise access, the
organization’s resources
b. PG is legally obligated, or has otherwise assumed the
obligation to finance the deficits of, or provide financial
support to, the organization
c. PG is obligated in some manner for the debt of the
organization
 The above are examples of other ways to show this
relationship?
66
AMENDMENTS TO THE “MISLEADING
TO EXCLUDE” CRITERION
 GASB 61 emphasizes the use of management’s professional
judgment when considering the inclusion of potential component
units.
 The relationship between a primary government and closely
related organization will generally be financial in nature and often
include financial benefit or burden relationships.
 When an organization does not meet financial accountability
criteria, management may still determine that inclusion is
necessary to prevent the reporting entity’s financial statements
from being misleading.
 When evaluating a potential component unit, management
should consider if the organization is closely related to or
financially integrated with the primary government.
67
AMENDMENTS TO THE CRITERIA FOR
BLENDING COMPONENT UNITS
 Discrete presentation is the default method for inclusion of
component units. Blending should occur only in specific,
narrowly defined circumstances. Prior to GASB 61, this
criterion consisted of “substantively the same governing
body” and “services provided entirely/exclusively to the
primary government.”
 GASB 61 adds additional criteria for blending component
units.
 Using just the “substantively the same governing body” rule,
resulted in PG adding significant assets to their financial
statements that they could not access, or significant debt for
which it was not liable.
68
AMENDMENTS TO THE CRITERIA FOR
BLENDING COMPONENT UNITS
 The two provisions added to the blending criteria of
“substantively the same governing body” were as follows:
1) Either a financial benefit or burden requirement also
exists between the PG and component unit, or
2) Management of the PG also has operational
responsibility for the component unit.
 GASB 61 also added a third criterion for blending, which
occurs when a component unit’s total debt outstanding,
including leases, is expected to be repaid entirely or almost
entirely with resources of the PG.
69
AMENDMENTS TO THE REQUIREMENTS FOR
REPORTING THE FUNDS OF A BLENDED
COMPONENT UNIT
 GASB 61 clarifies that funds of a blended component unit assume
all the characteristics of funds of the PG and are subject to the
same fund reporting requirements.
 The general fund of a blended component unit should continue to
be reported as a special revenue fund of the PG.
 For governments engaged only in business-type activities that use
a single-column presentation, a component unit may be blended
by consolidating its financial statement data within the single
column of the PG and presenting condensed combining
information in the notes to the financial statements.
70
AMENDMENTS TO THE REQUIREMENTS FOR
REPORTING THE FUNDS OF A BLENDED
COMPONENT UNIT
 Condensed combining information should include
at a minimum:
1) Condensed statement of net assets
2) Condensed statement of revenues, expenses,
and changes in net assets
3) Condensed statement of cash flows
71
AMENDMENTS TO THE MAJOR COMPONENT
UNIT REQUIREMENTS
 Prior to GASB 61, there was inconsistency between PG in how
they determined which component units are major.
 GASB 61 clarifies that major component units should be those
which are of greater interest to the financial statement user.
Therefore, determination should be based on the nature and
significance of relationship to the PG. This would include factors,
such as:
1) Essential services provided to the citizenry
2) Significant transactions with the PG
3) Significant financial benefit or burden relationship with the
PG
72
AMENDMENTS TO THE MAJOR COMPONENT
UNIT REQUIREMENTS
 In addition, GASB 61 eliminates the requirement that the major
component unit determination include consideration of each
component unit’s significance relative to other component units.
 Major component units should be presented either:
1) In a separate column in the statement of net assets and activities
2) In combining statements of major component units in the basic
financial statement following the fund financial statements, or
3) In the notes to the financial statement in a condensed financial
statement format.
 Nonmajor component units should be aggregated in a single
column. A combining schedule is not required but is allowed as
supplementary information.
73
AMENDMENTS TO THE REQUIREMENTS FOR
REPORTING EQUITY INTERESTS OF
COMPONENT UNITS
 When a government owns a majority of the equity interest
of a legally separate organization and the intent is to directly
enhance the government’s ability to provide governmental
services, the organization should be reported as a
component unit.
 Prior to GASB 61, equity interests in discretely presented
component units were reported as expense or outflow of
resources for the acquisition, whereas equity interests in
joint ventures were reported as assets.
74
AMENDMENTS TO THE REQUIREMENTS FOR
REPORTING EQUITY INTERESTS OF
COMPONENT UNITS
 GASB 61 now requires that the equity interest in a discretely
presented component unit be reported as an asset of the
fund that has the equity interest.
– If the component unit is blended, the equity interest is
eliminated in the blending process.
75
NOTE DISCLOSURES
 GASB 61 clarifies how disclosure requirements for
component units should be applied.
 Note disclosures should include the following:
1) Brief description of the component units of the financial
reporting entity and their relationship to the PG.
2) Discussion of the rationale for including each component
unit in the financial reporting entity and whether it is
discretely presented, blended, or in fiduciary funds.
3) Information about how the separate financial statements
for the individual component units may be obtained.
76
NOTE DISCLOSURES
 GASB 61 also clarifies that component units may be
disclosed together based on common characteristics, as long
as each component unit is separately identified. (Example:
multiple CRA funds)
 Believe it or not, no new disclosures.
77
AMENDMENTS FOR COMPONENT UNITS AND
RELATED ORGANIZATIONS WITH JOINT VENTURE
CHARACTERISTICS
 GASB 61 provides reporting guidance for minority interests
in component units and related organizations with joint
venture characteristics.
 For component units reported in a majority participant’s
financial reporting entity, equity interests of the minority
participants should be reported as “restricted net assets,
nonexpendable.”
 “Minority interest in a component unit” was also added to
GASB 34’s paragraph describing expendable and
nonexpendable restricted net assets.
78
ILLUSTRATION – GASB 61
Q: A County established a nonprofit
organization to provide emergency medical
services to its residents. The County
commissioners serve as the Board for the
EMS. The County provides significant
financial support to the EMS. How should
the EMS be reported in the F/S of the
County?
79
ILLUSTRATION – GASB 61
A: Blended Component Unit. The EMS
governing body is substantively the same as
the County’s and a financial burden to the
County exists.
80
ILLUSTRATION – GASB 61
Q: A District School Board has approved a
charter school. The charter school is not
fiscally dependent on the District, nor is the
District responsible for funding the charter
school’s deficits. There are no other
significant financial relationships between
the District and charter school. How should
the charter school be reported in the
financial statements of the District School
Board?
81
ILLUSTRATION – GASB 61
A: Not a Component Unit, but disclose as a
related organization. The District School
Board does not have financial accountability
for the charter school, nor does it appear to
be misleading to exclude the charter school
from the School Board’s financial statements
because of the lack of any significant
financial relationships.
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38 Years of Excellent Client Service
GASB Update Part 2
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38 Years of Excellent Client Service
GASB 62
84
GASB Statement No. 62
Codification of Accounting and Financial Reporting
Guidance Contained in Pre-November 30, 1989
FASB and AICPA Pronouncements
• Effective for fiscal years beginning after December 15,
2011 and thereafter (FL – FYE 6/30/13 & 9/30/13)
– Incorporates pronouncements issued before November 30,
1989, by the following that do not contradict GASB
Pronouncements
• FASB Statements and Interpretations (SFAS 106)
• Accounting Principle Board opinions (APB)
• AICPA Accounting Research Bulletins
– Supersedes GASB S-20
85
GASB Statement No. 62
 Capitalized interest
– Proprietary Funds
 Revenue recognition when right of return
exists
– Proprietary Funds
 Defines classifications for a classified
statement of position (balance sheet)
 Over 500 paragraphs
 Due to issuance of FASB Codification
86
38 Years of Excellent Client Service
GASB 63
87
GASB Statement No. 63
Financial Reporting of Deferred Outflows of
Resources, Deferred Inflows of Resources and
Net Position
• Effective for fiscal years beginning after
December 15, 2011
• Applies to Florida governments FYE 6/30/2013
and 9/30/2013
88
Background
 Concepts Statement 4 identifies 5 elements that make up
a statement of financial position:
–
–
–
–
–
Assets
Liabilities
Deferred outflows of resources
Deferred inflows of resources
Net position
 Differs from the composition currently required by
Statement 34, which requires the presentation of assets,
liabilities, and net assets in a statement of financial
position
 Statements 53 and 60 identify deferrals of resources
89
For Proprietary Funds
 Net approach is encouraged
 Balance Sheet approach is allowed
For Governmental Funds
 Balance Sheet approach still appropriate
 Difference is still called Fund Balance and applies
GASB 54
90
Definitions
 Deferred outflows of resources
– A consumption of net assets by the government that is
applicable to a future reporting period
– Has a positive effect on net position, similar to assets
 Deferred inflows of resources
– An acquisition of net assets by the government that is
applicable to a future reporting period
– Has a negative effect on net position, similar to liabilities
 Net position
– The residual of all elements presented in a statement of
financial position
91
Statement of Net Position
Assets +
Deferred
Outflows =
Total Assets
and Deferred
Outflows
Liabilities +
Deferred
Inflows = Total
Liabilities and
Deferred
Inflows
Net
Position
92
Display Requirements
 Deferred outflows should be reported in a separate section
following assets
 Similarly, deferred inflows should be reported in a separate
section following liabilities
 Net position components resemble net assets components
under Statement 34, but include the effects of deferred
outflows and deferred inflows
– Net investment in capital assets
– Restricted
– Unrestricted
 Governmental funds continue to report fund balance
93
Disclosures
• Provide details of different types of deferred
amounts if components of the total deferred
amounts are obscured by aggregation on the face of
the statements
• If the amount reported for a component of net
position is significantly affected by the difference
between deferred inflows or outflows and their
related assets or liabilities, provide an explanation in
the notes
• Balances of deferred outflows and deferred inflows
may be aggregated on face of statements
94
Current Deferred Outflows/
Inflows
Statement 53 - Accounting and Financial
Reporting for Derivative Instruments
Statement 60 - Service Concession
Arrangements
95
Examples of Other Deferred
Inflows of Resources Proposed
 Deferred amounts from refunding of debt
(credits)
 Proceeds from sales of future revenues
 Deferred gain from sale-leaseback
 “Regulatory” credits
96
Examples of Other Deferred
Inflows of Resources Proposed
 Deferred amounts from refunding of debt
(debits)
 Cost to acquire rights to future revenues
(intra-entity)
 Deferred loss from sales-leaseback
97
Other Issues
 Criteria for determining major funds will
include deferred items
 Use of the term “deferred” limited to
deferred outflows and deferred inflows
98
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GASB 64
99
GASB Statement No. 64
Derivative Instruments: Application of Hedge
Accounting Termination Provisions – an
amendment of GASB Statement No. 53
 Effective for fiscal years beginning after June 15,
2011
 Applies to Florida governments FYE 6/30/2012
and 9/30/2012
100
GASB Statement No. 64
 In many instances, governments have managed to
replace their swap counterparty or swap
counterparty’s credit support providers by
amending existing swap agreements or by entering
into new swap agreements.
 Therefore, GASB 64 was issued to clarify the
circumstances in which an effective hedging
relationship continues after these events occur.
101
When Does a Hedging Relationship
Continue?
 Statement 53 requires immediate recognition of
deferred amounts when swap is terminated
 This Statement clarifies when a hedging relationship
(and hedge accounting) continues when all of the
following are met:
– Collectability of swap payments is probable
– Counterparty (or support provider) is replaced with an
assignment or in-substance assignment
– Act of default or termination by counterparty (or
support provider)
102
Assignment
Assignment: Occurs when swap agreement is
amended to replace original counterparty, or
counterparty’s credit support provider, but all
other terms of swap agreement remain
unchanged.
103
In-substance Assignment
In-substance Assignment:
 Original counterparty, or counterparty’s credit
support provider, is replaced
 Original swap agreement ended and replacement
swap agreement entered into on same date
 Terms that affect changes in fair values and cash
flows in original and replacement swap agreements are identical (notional amounts, maturity,
reference rates, etc.)
104
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Future GASB Projects
105
Other Current Projects
 Economic Condition Reporting: Financial Projections
 Pension Accounting and Reporting
 Conceptual Framework
– Recognition and Measurement Attributes
 Government Combinations
 Financial Guarantees
 Fair Value Measurement and Reporting
 GAAP Hierarchy
 User Guide Series
106
38 Years of Excellent Client Service
GASB’s Economic Condition
Reporting: Financial Projections
Project
107
NCGA Concepts Statement 1
 Information concerning financial condition
of the governmental unit.
– To provide financial information useful for
determining and forecasting the financial
condition of the governmental unit and changes
therein.
108
GASB Concepts Statement 1
 Financial reporting should assist users in
assessing the level of services that can be
provided by the governmental entity and its
ability to meet its obligations as they
become due.
– Financial reporting should provide information
about the financial position and condition of a
governmental entity.
109
Why Now?
Current Environment
 Many governments are under financial stress
 Financial statement users are looking for the
pressure points
– Weakness in revenue sources
– Calls on resources
 Users need financial projections to assess a
government’s fiscal sustainability
110
What is Economic Condition?
 Economic condition is a composite of a government’s
financial position, fiscal capacity, and service capacity.
(Redundancies removed)
Financial Position – Financial position is the status of a
government’s assets, deferred outflows, liabilities,
deferred inflows, and net position, as displayed in the
basic financial statements.
Fiscal Capacity – Fiscal capacity is the government’s ability
and willingness to meet its financial obligations as they
become due on an ongoing basis.
Service Capacity – Service capacity is the government’s
ability and willingness to meet its commitments to
provide services on an ongoing basis.
111
Assumptions for Projections
 Principles-based approach for providing guidance on how
to identify and develop assumptions which would not
specifically identify the assumptions necessary for
projecting the components of fiscal sustainability
information.
 Principles provide that assumptions should be based on
relevant historical information, as well as events and
conditions that have occurred and affect the future, that
are:
– Consistent with each other and the information used as the
basis for the assumptions
– Comprehensive by considering significant trends, events,
and conditions
 Assumptions used by the government should be disclosed
112
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Pension Accounting and Financial
Reporting by Employers –
Preliminary Views of the GASB
113
Fundamental Approach
 Balance between a point-in-time measure of the
employer’s obligation to employees and the measure
over time of the cost to taxpayers of providing
governmental services
 Employment-exchange transactions create an
obligation of employer to employees to provide
pension benefits in retirement
– Annual exchanges, viewed by the Board within context of a
career-long employment relationship
 Accounting-based versus funding-based proposals
(currently, we compare the ARC with the actual
payment made)
114
Types of Plans
 Single-employer plans – involve only one government
 Multiple-employer plans – includes more than one
government
– Agent multiple-employer plans – separate accounts are
maintained to ensure that each employer’s contributions
are used to provide benefits only for the employees of that
government
• Individual employers are responsible for benefits
associated with their own employees only, and separate
actuarial calculations are made for each participating
government in the plan
• Collection of single-employer plans
• Costs of administering the plan are shared by
participating governments, and the plan assets are pooled
for investment purposes
115
Types of Plans
 Multiple-employer plans – include more than
one government
– Cost-sharing multiple-employer plans –
governments pool (share) the costs of providing
benefits and administering the plan and the
assets accumulated to pay benefits
• A single actuarial valuation is conducted for all of
the employees of the participating governments
combined
116
Biggest Changes
SOLE OR AGENT MULTIPLE-EMPLOYER PLANS
Old UAL meets the definition of a liability
when parameters of the calculation are
limited to:
– Use of fair value of plan net position, instead of a
potential actuarial value of assets
– Use of the actuarial cost method similar to the
current definition of entry age, instead of one of 6
methods, as allowed in Statement 27
117
Biggest Changes
SOLE OR AGENT MULTIPLE-EMPLOYER PLANS (Con’t.)
 Changes in the components of the total pension
liability, that are not changes in plan terms (which
are recognized as expense immediately) to be
amortized over the expected remaining service life
of plan members (now no distinction between
active and inactive (retired) employees)
– CHANGE FROM THE ED WHICH WAS – amortized over the
weighted average, expected remaining service life of the
individual employee (causing immediate recognition of
expense for retirees), instead of a period up to 30 years
118
Biggest Changes
SOLE OR AGENT MULTIPLE-EMPLOYER PLANS (Con’t.)
 Changes in investment performance (differences in
expected and actual investment performance)
should be amortized over a 5-year closed period
COST-SHARING MULTIPLE-EMPLOYERS
 Should apply these concepts and report their
collective share of the activity of the plan (liability,
expense, deferred inflows, and deferred outflows),
unless another entity is legally obligated to pay its
share, or a portion of its share, of the liability on an
ongoing basis
119
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Cost-Sharing Employers
120
Current Requirements
Reflect the pooling of risks and assets
Do not require actuarial information to be
presented for individual employers
– The information is required to be presented in the
cost-sharing pension plan’s own financial
statements
USERS want to know if a government in a costsharing plan, like other government employers,
incurred an obligation to provide pensions to
employees as they have worked
121
Proposed Recognition
A government participating in a cost-sharing
pension plan would report
– A net pension liability based on its proportion of
the collective net pension liability of all of the
governments participating
– The proportion would equal the government’s
long-term expected contributions to the plan
divided by those of all governments in the plan,
if calculation is practicable
122
Measurement
The Board adopts the same approach to
measurement of the collective unfunded
liability, deferred inflows, and pension expense
for cost-sharing employers as it tentatively has
done for sole and agent employers.
123
38 Years of Excellent Client Service
GASB’s Conceptual Framework
Project
124
Recognition and Measurement
Attributes Concepts Statements
Recognition Concepts:
 Develop recognition criteria for what items should
be reported as elements of that financial statement
 The related basis of accounting determines when
those items should be reported
125
Recognition and Measurement
Attributes Concepts Statements
Measurement Approach:
 Focuses on whether an asset or liability presented in
a financial statement should be reported at an
amount that reflects the value when:
– The asset was acquired or the liability was incurred
– Remeasured to reflect the value at the date of the
financial statements
126
Recognition of Elements of
Financial Statements
Board’s Preliminary Views:
 Financial statements prepared using the current
financial resources measurement focus (fund
statements) should be replaced with the nearterm financial resources measurement focus,
which recognizes balances from a near-term
perspective and flows of financial resources for
the reporting period
 The period to which near-term refers should be
considered in standards, rather than a concept
statement
127
Current Financial Resources
Recognizes the net effect of transactions on
current financial resources by recording
accruals for those revenue and expenditure
transactions which have occurred by yearend that are normally expected to result in a
cash receipt or disbursement within a
specified period after year-end (confusion –
is it 60 days, like deferred property taxes, or 1
year?)
128
Measurement Approaches
 Initial-Transaction-Date-Based Measurement (Initial
Amount)
– The transaction price, or amount assigned when an asset
was acquired or a liability was incurred, including
subsequent modifications to that price or amount, such as
through amortization or depreciation
 Current-Financial-Statement-Date-Based
Measurement (Remeasured Amount)
– The amount assigned when an asset or liability is
remeasured as of the financial statement date, including
fair value; current acquisition, sales, and settlement price;
replacement cost; and value-in-use
129
Measurement Approaches
Board’s Preliminary Views:
 Neither measurement approach is best for all
objectives
 Initial amounts are appropriate for:
– Assets that are used directly in providing services
 Remeasured amounts are more appropriate for:
– Assets that will be converted to cash
– Variable-payment liabilities, such as compensated
absences or pollution remediation obligations
130
38 Years of Excellent Client Service
Government Combinations
131
Project Objectives
 Consider the financial reporting requirements for
government combinations that are accomplished
through annexation, consolidation, acquisition,
shared service arrangements, or by other means
 Analysis of government combinations that have
taken place in both the general government area
(ex., City/County consolidations), and the businesstype activities area (ex., Healthcare organizations)
 Address certain spin-off issues (ex., a library district
that was formerly a department in a primary
government)
132
Overall Approach
 To consider government combinations based on the
presence (or lack) of financial consideration
 Other combination arrangements, without the
presence of financial consideration, that are within
the scope of this project:
– Annexations that include transfers of assets and liabilities between two
or more legally separate governments
– School district reorganizations that result in the consolidation of two or
more legally separate entities or that include transfers of assets and
liabilities between two or more legally separate entities
– Shared service arrangements in circumstances that governments jointly
agree to provide discontinued services and create new legally separate
entities, or contribute resources to existing legally separate entities in
order to provide those services
133
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Financial Guarantees
134
Financial Guarantees
Primarily associated with commitments
related to debt issue by governmental entities
Take many forms, including statutory
commitments
Current economic environment has resulted in
a level of financial stress, bringing to light
financial guarantees that have been made or
received in the past
135
Financial Guarantees
No single comprehensive source of guidance.
Heightened and potential for claims on a
government’s resources and if a recipient,
potential resources
Additional guidance should be developed
regarding the recognition and disclosure of
financial guarantees made by state and local
governments
136
Financial Guarantees
Examples:
A state government that guarantees the debt
of local school districts
Several states providing guarantees for investments made in venture capital organizations
137
38 Years of Excellent Client Service
Fair Value Measurement and
Application
138
Objectives of the Project
 Review and consider alternatives for:
– Further development of the definition of fair value
– Methods used to measure fair value
– Potential disclosures about fair value measurements
 Address issues of fair value measurement of
alternative investments:
–
–
–
–
Private placements and hedge funds
Real estate investment trusts
State land trusts
Partnership interest
139
Project Parts
Part 1 - Addresses the definition of fair value
and potential measurement techniques
Part 2 - Addresses specific issues involving
the application of fair value measurement to
specific assets and liabilities, including
donated capital assets and fair value
measurement in governmental funds
– Will not begin until Part 1 is completed
140
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GAAP Hierarchy
141
Project Objectives
 Will consider possible modifications to the GAAP hierarchy, as set
forth in Statement No. 55
 Will re-examine the hierarchy levels to assess whether the
standards-setting process and the governmental financial reporting
environment have sufficiently evolved since the establishment of the
original hierarchy by the AICPA in 1992 to warrant reconsideration or
reconfiguration of certain aspects of the structure
 Will consider modifying the reference to “the pronouncements
referred to in categories (a)-(d)” in Paragraph 6 of Statement No. 55
and adding a specific reference in that paragraph to the FASB
Codification as “other accounting literature”
142
38 Years of Excellent Client Service
GASB’s User Guide Series
143
GAAP Hierarchy Summary
Established Accounting Principles
GASB Statements and Interpretations, plus AICPA and FASB
pronouncements, if made applicable to state and local
governments by a GASB Statement or Interpretation
GASB Technical Bulletins, and the following pronouncements, if
specifically made applicable to state and local governments by the
AICPA: AICPA Industry Audit and Accounting Guides and AICPA
Statements of Position
Consensus positions of the GASB Emerging Issues Task Force (has
not been established) and AICPA Practice Bulletins, if specifically
made applicable to state and local governments by the AICPA (none
currently exist)
“Q’s and A’s” published by the GASB staff, as well as industry
practices widely recognized and prevalent
144
GAAP Hierarchy Summary
Established Accounting Principles
Other Accounting Literature
Other accounting literature, including GASB Concepts Statements’
pronouncements in the first four categories of the hierarchy for
nongovernmental entities, when not specifically made applicable
to state and local governments
145
User Guide Series
Project Objective
 To update the user guides to incorporate GASB standards
issues during the past decade and revising them to address
issues raised by readers
 To issue a new series of four user guides to replace the
original series
– What you should know about your local government’s finances: A
guide to financial statements (released January 2012)
– What you should know about your school district’s finances: A guide
to financial statements
– What you should know about the finances of your governmental
business-type activity: A guide to financial statements
– An analysts guide to state and local government financial statements,
note disclosures, and supporting information
146
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GASB’s Research Agenda
147
Research Agenda
 Electronic Financial Reporting - GASB to monitor and
encourage use
 Fiduciary Responsibilities - Assess whether additional
guidance should be developed regarding the application
of the fiduciary responsibilities criterion in deciding
whether and how governments should report fiduciary
activities in their financial statements
 Leases – Re-examine issues associated with lease
accounting, considering improvements to existing
guidance, including consideration of whether operating
leases meet the definitions of assets or liabilities
148
Research Agenda
 Tax Abatement Disclosures - Consider providing
disclosure guidance for governments that have granted
stand-alone property tax abatement programs
(SAPTAPS) or other abatements/subsidies that share the
same characteristics
– Provide for decreased tax liability for select parcels
– Serve a specific purpose beyond tax relief (spurring
growth) - taxpayer receiving the abatement promises
some performance
– Are in effect for a limited time
– Can stand alone without other incentives
149
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QUESTIONS?